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Still possible to work outside IR35, despite Dragonfly Consultancy verdict

Published on Dec 18, 2008 |

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The PCG, which represents many contractors in the UK, has released a new edition of its IR35 Guide. Coming just months after a landmark IR35 court case, the contractors group points out that it's still entirely possible to work outside IR35 if contractors take care.

In September, Dragonfly Consultancy Limited faced a huge £99,000 bill after its director was found to have been "within IR35" during an IT Contract with the AA.

John Brazier, MD of the PCG, said: "It's still entirely possible to work outside IR35, despite the shock of the Dragonfly case earlier this year. What that case showed is that the traditional advice remains sound, but must be followed thoroughly and carefully."

The new IR35 Guide, which is available to PCG members, clarifies issues such as the importance of the "upper" (agency-client) contract matching the "lower" (limited company-agency) contract which the freelancer actually signs, and the need to be able to demonstrate through "real arrangements" letters or other documentation that the reality of what happens tallies with what the contract says.

The guide also emphasises the importance of the "Big 3" indicators of whether you may be caught by the IR35 rules or not. These are;

1. Personal Service (Substitution)
2. Director and Control
3. Mutuality of Obligation

You can read more about these, and the other IR35 indicators, in our guide to employment status.

The PCG is also awaiting the outcome of another IR35 court case in early 2009 - this time involving Larkstar Data Limited. Unusually, the owner of Larkstar won the case at the General Commissioners, but HMRC have appealed the verdict.